Can rate cuts help budget housing?

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- Harsha Jethmalani

The Reserve Bank of India (RBI) trimmed the repo rate by 25 basis points (bps) on Friday, taking the key lending rate to 5.25%. With this, the total repo rate reduction in 2025 is 125 bps. As banks begin to adjust lending rates, equated monthly instalments (EMIs) would tread lower and home loans could get cheaper. Typically, it should benefit the beleaguered affordable housing segment as it is more sensitive to interest rate movements.

“(Our) sensitivity analysis indicates that every 1% cut in the base lending rate results in a 0.24% increase in priority-sector home loans,” said Vivek Rathi, national director - research, Knight Frank India. Borrowers in the priority sector are typically from the economically weaker sections and lower income groups, also eligible for schemes like the Pradhan Mantri Awas Yojana (PMAY) subsidy.